Time will tell if Amazon’s Prime Day, roundly criticized on social media as a bust, will have the intended effect of enveloping more shoppers into the Prime universe. Nevertheless, headline-grabbing events like this are part of Amazon’s evolution, which is no doubt intended to maintain its status as a disruptor.
But this evolution may not be enough to save Amazon, the beast that ate retail, from being disrupted itself.
Why? Its current focus on online commerce runs counter to where global commerce is headed – a seamless blending of online, offline, personalized, social shopping. And without massive investments in offline retail that would further prolong profitability, the company risks losing the competitive advantage it has so long enjoyed.
“Amazon cannot survive as a pure-play retailer,” said Scott Galloway, founder of L2 Research and a professor at the NYU Stern School of Business, at the January DLD15 conference. “Stores are the new black in the world of ecommerce. We have discovered these incredibly robust, flexible warehouses called stores.”
Amazon, having opened a college campus store and having reportedly expressed interest in acquiring RadioShack locations, clearly recognizes the threat posed by some traditional retailers, which are mastering the art of blending online and offline commerce.
Need proof that physical stores are a crucial part of the retail mix? Consider the following:
Occupancy rates at U.S. malls and shopping centers hit a 27-year high of 94.2% in 2014; shopping center base rents rose 6.5% in 2014, the third consecutive annual gain and the strongest level since 2008, according to the International Council of Shopping Centers.
Hybrid retailers including Macy’s, Nordstrom, Wal-Mart and Dick’s Sporting Goods are just a few of the companies growing their ecommerce business faster than Amazon – and they’re doing it profitably.
Digital interactions are expected to influence 64 cents of every dollar spent in retail stores by the end of this year, according to Deloitte Digital.
Two-thirds of retail CIOs say merging ecommerce, mobile, social, catalog and store selling channels is their number two priority, second only to data security, according to the National Retail Federation and Forrester Research.
The 2015 State of the Online Shopper survey of 5,100 U.S. consumers found that 61% prefer to return items to stores versus 39% who want to ship an item back to a retailer; the survey also found that fewer than half made another purchase when returning online, while 70% make additional purchases when returning in store.
With a cash pile of more than $10 billion and a willingness to sacrifice profits in pursuit of growth and market share, Amazon could establish a brick and mortar foothold. But it is unclear whether investors would support such a costly move given an already declining EPS backdrop resulting from massive gambits in areas such as fulfillment technology and warehousing.
Even if it never invests in brick-and-mortar, where will margin improvement come from? Raising prices might be an option if Amazon were willing to sacrifice market share. But given the recent news that it will offer free shipping on sub-8 oz. items to non-Prime members, with no minimum purchase, that does not appear likely.
Indeed, its shipment costs continue to dwarf its shipping fees, and its fulfillment advantage is being eroded by on-demand payment and delivery a la Uber and Shyp.
The other major trend looming over Amazon is social shopping. Amazon has failed to extend its reach into social media communities where massive numbers of like-minded people gather and recommend products. It has not established a presence that extends beyond Amazon.com, a shortcoming in our hyper-connected world. And it has no real way of capturing buyers who don’t already have an intention of purchasing. Today’s consumer is far less dependent on a single marketplace, physical or virtual, to discover and purchase products.
Marketers are expected to spend nearly $36 billion advertising on social networks by 2017 to capture these shoppers, and the powerhouses of social media are clearly stepping up their game. In April, Twitter announced it would buy TellApart, providing retailers with cross-device retargeting through ads and email marketing; Instagram lets retailers link to product pages from Instagram ads; Facebook has already added a “buy” button and has acquired ecommerce search app TheFind; Pinterest is launching Buyable Pins; while not a social play, Google will soon incorporate a buy button alongside search results.
A November 2014 report from L2 noted that brands participate on an average of seven social media platforms. In other words, Amazon isn’t the only game in town. Merchants don’t have to risk brand dilution on Amazon, where third parties selling their products compete for customers with the lowest price.
Further, consumers who arrive to retail sites from social networks or share an item on a social network spend an average of 8.2% more than other shoppers spend, accordingto AddShoppers, which analyzed data from 10,000 ecommerce sites.
Meanwhile, Amazon’s social media forays have been limited to a May 2014 deal allowing Twitter users to add items to their Amazon shopping carts by including a hashtag within a tweet, an initiative that does not appear to have borne much fruit.
Yet another disruptive force in retail is the way in which brands leverage content to engage with consumers and build brand value. Leading retailers today are using their home court advantage by investing in and embracing content and commerce to tell their brand story. This results in a shopping experience that Amazon just can’t match, and some brands are shunning Amazon for that reason.
One example: Jessica Alba said at the South by Southwest Conference in March that she will not sell her Honest line of natural products ($150 million in 2014 sales) on Amazon because does not want to relinquish control of the customer experience.
More broadly, while Amazon’s selection is vast, it is not all-inclusive. Many brand-name retailers and “prestige brands” do not sell their wares directly on Amazon. According to L2, only 16% of luxury fashion brands officially distribute on Amazon.
In early 2014, Amazon was reportedly in talks with retailers including J.Crew, Abercrombie & Fitch and Neiman Marcus to carry those brand’s listings on its site – that deal never materialized.
The next phase of major disruption in retail is here, driven by endless touch points, the convenience of physical stores, social commerce, and a personalized brand experience. Disruption is the natural selection of the business world, causing seemingly unbeatable companies to become beatable. Forbes pointed out that that fifty years ago, the life expectancy of a company on the Fortune 500 was about 75 years. It is less than 15 years today and falling.
There’s no question that marketplaces like Amazon will have a place in the retail landscape, but the concept of an “everything store” owning all of retail will not pan out. Why? Because brands and consumers find it easier than ever to find each other in this connected world. Ultimately this comes down to choice and convenience for the customer, and that trumps the ambitions of any one company.
Jeff Barnett has served as Demandware Executive Vice President and COO since January 2013 and as member of the Board of Directors since July 2014. He previously was Vice President of Sales for EMEA at Siebel Systems. He serves on the board of directors of several private companies. Barnett holds a B.S. in computer information systems from Colorado State University and an M.B.A. from the MIT Sloan School of Management.
[“source – .forbes.com”]